Wall Street Is the New Fantasy Island

Companies begin reporting their third-quarter earnings in earnest this week, and the results are not expected to be all that fantastic. Profits are predicted to have grown just 3.6 percent for the companies in the S&P 500 compared with the same quarter a year ago, according to Bloomberg estimates. That would be the slowest growth in a year and a significant drop from the 10 percent earnings increase in the second three months of the year.

Investors and Wall Street strategists, though, seem unworried. The market has traded up nearly every day since the second week of September. Mike Wilson, the bullish chief U.S. equity strategist at Morgan Stanley, says the low bar for earnings is actually a good thing because it makes it easier for companies to beat expectations. Some of the slowdown can be attributed to the temporary effects of hurricanes. But the biggest reason for the continued optimism is that profit growth is expected to quickly rebound to nearly 12 percent in the fourth quarter and remain in double-digit territory for the foreseeable future.